U.S. is Falling Further Behind in Research and Development Funding

Yet another study has highlighted the United States’ expanding investment deficit and our growing innovation disadvantage compared with our global competitors. Battelle’s 2013 Global R&D Funding Forecast indicates that, even before accounting for the looming sequester, total U.S. R&D investment in 2013 is expected to decline in real dollars, with growth of only 1.2 percent compared with an inflation rate of 1.3 percent. This continues a long period of U.S. underinvestment in R&D, which has been particularly acute in stagnating federal research investment. According to the National Science Foundation, federal R&D investment grew at just 1.3 percent annually from 1989 to 2009, while gross domestic product rose an average of 2.4 percent over that time. In fact, to restore federal support for research as a share of GDP to 1987 levels, Congress would have to increase federal research funding by almost $110 billion—per year.

Meanwhile, the world’s greatest growth in R&D investment in 2013 will come from China, which is expected to increase its R&D investment by $22.9 billion in 2013.Through its Innovation 2020 strategy, China plans to invest $1.5 trillion over the next seven years on seven “strategic emerging industries,” namely: energy efficiency and environmental protection technologies; next generation information technology; biotechnology; high-end equipment manufacturing; new energy; new materials and alternative fuel vehicles.

To get a sense of the level of this investment, for the United States to match this on a per-GDP basis it would have to pass an American Recovery and Reinvestment Act—the 2008 “stimulus bill” that appropriated over $800 billion—every year for the next five years and have all the funds go to making U.S. industries more competitive.

Battelle’s report alarmingly notes that, “China has established a consistent pattern of double-digit R&D funding increases since the 1990s and over the past twenty years has risen from R&D obscurity to challenging the U.S. (and likely succeeding) for global R&D leadership.” Within a decade, China may become the world’s #1 R&D investor in real dollars, especially if U.S. investment in R&D continues to stagnate or contract while China’s accelerates.

Sequestration will only exacerbate these trends. As ITIF has noted, sequestration will lead to a cut of 8.7 percent (or $12.5 billion) in federally funded research and development in 2013. This will result in job losses of approximately 200,000 in 2013 alone and engender a reduction in GDP of between $203 billion and $860 billion over the ensuing nine year period (depending on the baseline used).

Robust investment in R&D is critical to ensuring a nation’s leadership in science, technology, and innovation. The United States can no longer take its leadership position in any of these categories for granted. While many in Congress understandably do not want to impoverish the next generation of Americans by saddling them with unsustainable debt loads, if they try to address the debt by slashing productive investments in the future, they will end up impoverishing future generations of Americans just the same (and likely worse so). Therefore, Congress and the Administration should commit to restoring the R&D funds imperiled by the current sequestration and to more broadly maintain stable and robust funding for federal R&D, keeping the United States on a path to consistently meet the stated target of investing 3 percent of U.S. GDP in R&D annually.

About the author

Stephen Ezell is a Senior Analyst with the Information Technology and Innovation Foundation (ITIF), with a focus on innovation policy, international information technology competitiveness, trade, and manufacturing and services issues. He is the co-author with Dr. Atkinson of "Innovation Economics: The Race for Global Advantage" (Yale, 2012). Mr. Ezell comes to ITIF from Peer Insight, an innovation research and consulting firm he co-founded in 2003 to study the practice of innovation in service industries. At Peer Insight, Mr. Ezell co-founded the Global Service Innovation Consortium, published multiple research papers on service innovation, and researched national service innovation policies being implemented by governments worldwide.

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